Cracking the Market

In the multichannel universe, the path to becoming an established network is a long, tricky journey. But last month, Ken Solomon took two important steps toward success.

In his day job as chairman/CEO of the Tennis Channel, the veteran executive won the rights to carry the French Open, one of the sport’s marquee events. Then only days later, Solomon was named chairman of the struggling Ovation network by a buyout group headlined by the Weinstein Co.

Although he won’t be running Ovation, his dual hope is to make the three-year-old Tennis Channel a winner while helping the management of Ovation reformulate the niche network so it can take over the turf deserted by A&E and Bravo.

Neither will be easy. Both networks desperately need to increase distribution (Tennis is in 10 million homes, Ovation is in only 5 million) at a time when cable and satellite operators have limited bandwidth. And cable’s once booming ad market has slowed considerably, forcing a growing number of channels to fight for a piece of property in a neighborhood the builder is content to develop more slowly.

Yet Solomon, who successfully launched the Fine Living network, is unfailingly optimistic. “It’s incredibly challenging,” he says. “Shelf space is limited, ad dollars are at a premium, but there is always room for a hit, for a great idea.”

Despite the climate’s making it more difficult than ever to find enough viewers, there are new or still-tiny channels focusing on healthy living, equestrian sports, Japanese anime, Asian-American life and show biz. As a rule, getting the network into 20 million homes is a baseline for viability, laying the groundwork for substantial Nielsen ratings and advertising dollars.

“The emerging networks have a tough road if they’re stand-alone, there’s no question about it,” says Lynne Buening, head of programming at RCN, the operator that is the “second” cable system in several markets, including New York. “But they certainly have their day in court with us, and if they can deliver the goods, we’re willing to take a serious look.”

Securing carriage agreements is considerably harder for the likes of Lime, Anime or HorseTV. Whereas Viacom can leverage MTV to gain distribution for its gay channel, Logo, channels without big corporate parents must make a case solely on their merits.

Distribution Potholes

Yet affiliation with a major media company doesn’t guarantee freedom from distribution bumps. When Comcast acquired AZN two years ago, the Asian-American network was in 7 million of the cable operator’s homes—and it still is today.

“We have to fight the same exact battle as if we were not owned by them,” says Bill Georges, senior VP of affiliate sales. Comcast is also a partner with African-American cable channel TVOne, which has attracted 33.2 million subscribers in the 2½ years since launch and is well-placed in cities with the largest black populations.

Appeal and Cost

When MSOs and satellite operators evaluate whether to pick up a network, they consider two primary issues: the appeal of the programming and the cost in license fees.

But other factors go into the mix. Among them are a network’s ability to provide video-on-demand (VOD) content and whether the niche programming can attract more upscale customers. Operators, particularly those pushing triple-play bundles, are eager to increase the number of customers willing to pay for more-expensive packages.

They may also be enticed by a network’s willingness to offer the service à la carte or via subscribtion VOD (SVOD), where customers pay a monthly fee and the distributor receives a share of the revenue.

Some networks determined to get carriage will pay for a spot in the lineup. Imagin Asian TV, a second network targeting Asian-Americans, launched two years ago by paying Comcast for carriage in 230,000 San Francisco homes. It’s now in 4.4 million nationwide.

Over time, emerging networks will have a new market. They will be able to go beyond cable and satellite operators and seek distribution with telcos like Verizon and AT&T, which are beginning to distribute television services.

Some independent programmers are opting to circumvent the distribution gatekeepers altogether. With broadband at critical mass, niche networks can easily launch on the Internet. And, as people increasingly connect computers to TV screens, networks like TheSailingChannel.com, JumpTV and Heavy.com may eventually challenge linear channels.

“We’re just not going to be held back by cable and traditional terrestrial broadcast roadblocks,” says Tory Salvia, president of TheSailingChannel.

JumpTV.com, which offers expatriots channels from their home countries, is confident that “sliver-casting” will allow it to grow with the dual revenue streams of subscription and ad dollars.

In July, Heavy.com posted a 214% jump in traffic from a year ago, to 3 million unique users, according to Nielsen//NetRatings. The site targeting men 18-34 with edgy, irreverent content is laden with ads from blue-chip marketers. Perhaps offering a glimpse of the future, it has signed a new deal to deliver programming directly to TV screens of TiVo users.

The importance of broadband and multi-platform distribution is not lost on linear networks Lime and the Tennis Channel, but both believe that television remains the linchpin.

“In order to build the kind of lifestyle-media brand we want, you have to have television,” says CJ Kettler, CEO of Lime, which focuses on “greener, more-balanced” living.

Carriage Deals

The HorseTV Channel is attempting to lure operators by essentially operating as a premium channel and then splitting revenue with the system operator 50-50.

ReelzChannel, the brainchild of Hubbard Broadcasting, spent six years methodically cutting carriage deals. Later this month, it will launch in an extraordinary 28 million homes.

ReelzChannel aims to be an information destination for all things movies, but its appeal to operators goes beyond content. The network promises to direct viewers to films showing on premium movie channels, pay-per-view or SVOD, potentially putting more dollars in operators’ pockets. Its large distribution also makes it more attractive to Madison Avenue from the get-go.

Anime Network didn’t wait for carriage. In 2002, the Japanese-animation programmer gambled by launching solely on Comcast VOD, hoping to demonstrate that it could deliver a substantial audience.

“A Thousand Flowers”

Anime has since spread its VOD and now SVOD service to 24 million homes. Two years ago, it hoped to parlay the VOD-based revenues it helped operators generate into distribution for a linear network. But so far, the channel is in only 1 million homes, proving that an emerging network must demonstrate value every step of the way.

“The marketplace ultimately decides,” says John Rash, an ad buyer and industry analyst at Campbell Mithun. “If it makes even a small amount of people happy with their programming choices and it’s a sustainable business model, then let a thousand flowers bloom.”